Donnelly Corporation Business Information, Profile, and History

Company Perspectives:

If you drive a car today, chances are it has one or more Donnelly products built into it. Donnelly is dedicated to serving customers around the globe with industry-leading components and systems in automotive mirrors, windows and door handles.

History of Donnelly Corporation

Donnelly Corporation is a supplier of automotive components, ranking as the largest manufacturer of automotive mirrors in the world and as a leader in the production of other components and systems such as door handles and windows. The company supplies automotive parts to every major automobile manufacturer in the world through 15 production plants in 12 countries. Renowned for innovation in design, Donnelly is recognized also for its use of progressive management theories and systems. The company is a leading practitioner of participative management, a management system that shares decision making among executives and rank-and-file employees.

Origins

Donnelly Corporation was founded by Bernard P. Donnelly in 1905 in Holland, Michigan, as a manufacturer of mirrors for the then-thriving Michigan furniture industry. Founded as the Kinsella Glass Company, the company was later renamed the Donnelly-Kelly Glass Company. Donnelly's main products in the early years were engraved mirrors for use on furniture as well as freestanding engraved wall mirrors. These 'art' mirrors, featuring scenes from nature as well as ornate decorative motifs, became very popular for home furnishings through the early part of the century and, as a result, Donnelly's business flourished. The engraving of the mirrors was done primarily by hand, but the precision grinding and polishing that this craftsmanship required formed the basis for much of the glass technology that Donnelly would later develop. Being in business in Michigan during the 1920s meant watching the phenomenal growth of the American automobile industry. Although decorative mirrors remained the core of its business, Donnelly also jumped on the automobile bandwagon and began production of rear windows for touring cars.

World War II marked a turning point for Donnelly. As America geared up for the war effort, the company converted its decorative mirror factory into a specialized lens and mirror production facility. These highly precise glass components were needed for military equipment ranging from aerial gunsights to submarine periscopes, and there were few manufacturers who could produce them with speed and accuracy. Donnelly scrambled to refit its factory with the necessary machinery to perform this task and to retrain its craftsmen to measure in microns instead of inches. Among the techniques developed by Donnelly during its wartime experience was the process of vacuum coating glass with a variety of materials to produce mirrors with varying degrees of reflectivity. This technology would prove invaluable during the company's later development of automobile mirrors.

When the war ended, Donnelly found itself with a great deal of new technology and experience, but in search of new markets for glass and mirror products. Not only had decorative mirrors gone out of fashion, but the furniture industry that Donnelly had supplied was moving south to find cheaper labor. The automobile industry in Michigan, however, was booming. Production could not keep up with the demand from product-hungry postwar consumers. Donnelly made the crucial decision to transform what had been a secondary market into a primary source of sales. The company began to manufacture interior and exterior prismatic mirrors for the automobile industry and soon became one of the leaders among automobile parts suppliers. Donnelly's experience in vacuum coating glass became one of its prime assets as the company developed a number of innovative applications in both the automotive and aircraft industries. By the mid 1950s, with new markets and products fully in place, management decided to change the company name to Donnelly Mirrors Inc. to better reflect this more specialized line.

1960s and 1970s: Innovation and Diversification

The 1960s and 1970s constituted a period of major expansion for Donnelly in terms of both the range of products the company manufactured and the number of industries it supplied. One major innovation for the company during this period was the development of the encapsulated mirror, which was delivered to automotive manufacturers as a single unit mirror enclosed in a plastic frame. The plastic mirror housing was not only much safer than the previously standard metal frame, but was also much cheaper for automobile makers to install. Once Donnelly had the technology and equipment to produce the plastic molding, it was able to expand its line to other plastic components and to provide customers with complete interior mirror assemblies, including the bracket used to attach the mirror to the car. This would mark the beginning of the company's expanded line of complete part assemblies.

By the mid-1970s, this new plastic molding technology allowed Donnelly to introduce one of the most important innovations in the car parts industry. Known as the modular window, this new product involved encapsulating window glass in a plastic frame that also incorporated attachment hardware and decorative trim. This new window not only greatly reduced labor costs at the automotive plants by reducing a four-step process to a single quick installation, but also substantially altered the design possibilities of new vehicles. The streamlined look that became so popular in vehicles through the 1980s was in large part made possible by the Donnelly modular window.

In addition to the major developments in product technology that Donnelly undertook during the 1960s and 1970s, the company also began to reach out to markets overseas. Anticipating the growth of the European and Japanese auto industries, Donnelly founded a wholly owned subsidiary, Donnelly Mirrors, Limited, in Naas, Ireland, to supply these expanding industries. The company also expanded its American markets by producing coated glass products for nonautomotive applications, such as copy machines and fluorescent displays.

The 1980s was a demanding period for the American auto industry, as competition from abroad made serious inroads into the American car market. Donnelly survived this critical period by expanding its line of ready-to-install plastic and glass components as well as by increasing its already established relationship with foreign car manufacturers. As American auto manufacturers began to scramble to meet the quality and energy efficiency standards set by Japanese competitors, Donnelly's emphasis on product development and innovation made the company an increasingly attractive supplier.

Donnelly began to experiment with electronic lighting to provide low glare interior lighting in association with its rear-view mirrors. The company then branched out into producing integrated lighting systems, including overhead, door, and visor lights. Like the modular window, which was proving increasingly successful for the company, these assemblies integrated a number of components that previously would have been installed separately by the manufacturers. The reduction in labor costs for the automakers was an important factor in increasing Donnelly's share of the auto parts market. To reflect the growing diversity in the company's product line--which by this time ranged from windows to liquid crystal displays (LCDs)--Donnelly Mirrors, Inc. was renamed Donnelly Corporation in 1984.

As Donnelly moved into the 1990s, the relationship between auto manufacturers and auto parts suppliers was undergoing a profound change. Not only were automakers increasingly looking to suppliers as partners in research and development, but they also were fostering more long-term cooperation and commitment between manufacturers and suppliers. Traditionally, American automakers had obtained lowest possible cost components by buying the same part from five or six suppliers, thereby encouraging cutthroat competition among auto parts manufacturers. As hard times during the 1980s forced many parts suppliers out of business, however, automakers were forced to substitute high-volume and long-term contracts for competition in order to reduce costs. Although the early 1990s were lean years for Donnelly, and the auto industry in general, the company did benefit from several large contracts for complete mirror assemblies and modular windows from Honda, Ford, Mazda, and Chrysler. To meet these new large commitments, Donnelly undertook a costly overhaul of its production facilities, including construction of new plants in Michigan, Mexico, and France and of new production lines within older facilities.

During the 1980s and 1990s, Donnelly's extensive experience in coated glass products gave the company an entry into the then-booming electronics industry, as it began to produce electrically conductive coated glass products to be used in LCD applications. These new applications, including touch-sensitive computer screens, became a significant factor in overall sales. In the early 1990s, however, increased market demands for efficiency of operations prompted the company to restructure its nonautomotive ventures. In 1992, Donnelly's display coatings business was transferred to Donnelly Applied Films Corp. (DAFC), a joint venture with Applied Films Laboratory Inc. in which Donnelly maintained a 50 percent share. Other nonautomotive products also were transferred to, or developed in conjunction with, joint ventures operating independently from Donnelly's core automotive businesses.

One of the most promising new technologies developed by Donnelly in the 1980s was the electrochromic coating of automobile mirrors to allow them to adjust automatically to reduce glare. Donnelly, however, became embroiled in an ongoing legal dispute with Gentex Corporation about the patent rights to this technology. Gentex sued Donnelly in 1990 for patent infringement of its electrochromic mirrors. After a lengthy series of suits and countersuits, in 1993 the parties reached a settlement in which Donnelly agreed to pay Gentex $3.6 million in damages, which took a sizable bite out of net income for that year.

Above all else, Donnelly gained a strong reputation in the world of business for its longstanding innovative approach to company management. Donnelly earned numerous awards and citations over the years for its participative management system and was listed as one of the top ten best companies to work for in America. In 1952, when much of Michigan industry was settling down into long-term combative relationships with big unions and top-heavy management systems, Donnelly introduced a system of employee participation and bonuses called the Scanlon Plan. Developed by an MIT professor, Joseph Scanlon, the plan was based on the principle that if employees were informed about the reasons for company decisions and could participate directly in the benefits of these decisions, employee satisfaction and productivity would increase. The core of the plan involved a set of weighted bonuses for all employees calculated as a percentage of the cost/sales ratio.

From the perspective of the 1990s, when Total Quality Management and employee satisfaction became buzzwords, the plan would not appear revolutionary. In the early 1950s, however, the idea of sharing increases in profits with workers was viewed as almost communistic by some in the auto business. John F. Donnelly, a former seminarian and then president of the company, was firmly committed not only to the management position that this type of plan would lead to increased productivity, but also to the philosophical belief that as the head of a company he was responsible for ensuring a decent and fair work environment. Donnelly Corporation management remained firmly committed to these ideals over the course of almost 50 years.

By the 1990s, what had started as a bonus plan for employees had evolved into a complete team approach to all decision making in the company. Although a hierarchy of management teams was retained, with the executive team at the highest level and ultimately responsible for the operation of the company, decisions were made at each level using cooperative decision-making practices that included all members of the work force. In addition, a series of "equity" committees with elected representatives from all levels in the company were responsible for such issues as pay structure, benefit plans, and grievances. This constantly evolving system has made employee satisfaction among the highest in the country, while the constant questioning and feedback about work processes that the committee structure encourages has led to almost no waste in the Donnelly production line. One unexpected result of this participative management system was that when it became crucial for American car parts makers to forge ties with the Japanese auto industry, Donnelly's management style meshed very closely with that employed in Japan. An important contract with Honda in the mid-1980s was, in part, the result of these harmonious corporate cultures.

When World War II temporarily halted the manufacture of decorative mirrors at the Donnelly-Kelly Glass Company, the company had a respectable $1 million worth of annual sales. By 1965, with the company firmly entrenched in the automobile parts industry, sales had quadrupled to almost $4 million, but this still represented only a very small portion of the auto parts market. It was during the 1960s and 1970s that Donnelly's growth began in earnest, with sales mounting to almost $40 million by 1980. This dramatic increase was mainly due to the company's success at garnering an increasingly large portion of the auto interior mirror market, thanks to its plastic-cased "safety" mirrors and complete mirror assemblies. By 1976 Donnelly controlled 70 percent of the rear-view mirror market. By the early 1990s this figure rose to an impressive 90 percent. The domination of the interior mirror market, in addition to strong growth in exterior mirrors and modular windows, created annual sales of some $337 million by 1994.

Crisis Management in the 1990s

Traditionally, the performance of auto parts suppliers has been almost entirely dependent on the state of the automobile manufacturing industry. When the auto industry went into a deep recession in the early 1980s and again in the early 1990s, Donnelly's sales flattened out and income dropped. By 1992, however, earnings had risen once again and Donnelly appeared to be well on its way to a strong recovery. Although sales did rise in 1994 and 1995, the large expenditures involved in renovating and constructing new manufacturing facilities, as well as litigation expenses from the ongoing patent dispute with Gentex, caused net income to drop. In the first quarter of 1995 Donnelly recorded a net loss of $85,000, at a time when the auto industry as a whole was reporting soaring profits.

Viewed against the backdrop of the automobile industry's robust growth, Donnelly's loss in the first quarter of 1995 took on a profound, and alarming, meaning. By the mid-1990s, the company could no longer point to recessive economic conditions as the cause for its own anemic financial performance. The problem, company officials were forced to concede, was rooted internally, rendering the industry's dominant force an almost farcical failure. On more than one occasion, airplanes and helicopters had to be chartered to make deliveries. Quality control became mutually exclusive terms, as the company's defect rate soared. Employee morale was at an all-time low, worn thin by a decade-and-a-half of new management philosophies and productivity improvement programs, which had the cumulative effect of sending Donnelly's manufacturing operations into a near-chaotic state. In one infamous incident, a company vehicle was reported stolen, only to be found later on a factory floor, lost among the mountains of debris that testified to the pervasive disorder and confusion crippling Donnelly's manufacturing operations. The situation became a crisis in late 1994 and early 1995, when Honda and Toyota, two of the company's largest customers, appeared as if they might sever their ties to Donnelly.

Faced with losing business it could not afford to lose, Donnelly embraced a new management theory in 1995. Ironically, the major cause of the turmoil at Donnelly had been its willingness to experiment with new management ideas as a way to contend with rapid expansion, but when two former Toyota managers, Art Smalley and Russ Scaffede, joined the company in October 1995, meaningful, corrective changes arrived with them. Companywide, the pair implemented a "lean production system" used at Toyota, a program aimed at improving production quality and efficiency.

Department by department and plant by plant, the new measures were put into place, resulting in gradual yet comprehensive improvements. Production lines were streamlined, inventories were reduced, and a visual production scheduling system known as "kanban" was introduced that enabled workers to prioritize production needs by glancing at posted boards displaying kanban cards. In addition, the company announced in 1997 that it was reducing the number of vendors it used, promising to trim its supplier base in half by the end of the decade. Although Scaffede explained that the lean production system would not be fully implemented until 2001--"It's a deep-rooted, slow change," he remarked to Automotive News on August 4, 1997--the company's efforts to solve its problems were clearly bearing fruit by the end of the 1990s. Between 1996 and 1998, defects plunged from 1,290 parts per million to 92 parts per million. Equally important, the company ended the decade by registering four successive quarters of record earnings, exceeding analysts' projections.

With order, efficiency, and quality control restored, Donnelly exited the 1990s displaying its formidable strengths. The company's dominant market position--Donnelly controlled 95 percent of the North American market for rear-view mirrors--fueled prolific revenue growth during the 1990s, leading to a threefold increase in annual sales between 1993 and 1999. Large contracts to supply parts for Daimler Chrysler's minivan and Ford Motor Co.'s Expedition sport utility vehicle during the late 1990s were significant contributors to the company's swelling financial stature, but more important was Donnelly's tradition of innovation. The company's engineering and new-product creativity, which a Honda executive described as "out of this world" in the March 8, 1999 issue of Forbes, represented its enduring strengths, fueling confidence that Donnelly's record of success would continue in the 21st century.